FINANCIAL STATEMENTS
– In Detail
Quick Summary
Small businesses need to keep detailed records of the inflow and outflow of
funds in their business so that they may track the success of the business and
also for taxation purposes.
The three types of financial statements that we will be looking at are:
 Revenue Statement
 Balance Sheet
 Cash flow statement
Important Terms
The following is a list of terms that are important to know when working on financial
statements. We will discuss these terms as we move through the worksheet.
Revenue
expenses
gross profit/loss
Net profit/loss
assets
liabilities
Owner’s equity
liquidity
Revenue Statement
Businesses use revenue statements to measure their revenue against their expenses to
figure out how much profit they are making.
Important equations in a revenue statement are:
Revenue – Cost of Goods Sold= Gross Profit
Gross Profit- Expenses = Net Profit
Revenue: The income earned by a business
Expenses: costs incurred in running the business
Gross Profit/loss: the amount remaining when the cost of goods sold is deducted from
revenue
Net Profit/loss: the amount remaining when operating expenses are deducted from gross
profit
What might be some expenses that a business might incur?
 _____________________________________________________
 _____________________________________________________
 _____________________________________________________
 _____________________________________________________
Some things to remember when drawing up a Revenue Statement:
 There should be 3 columns
 The first column should hold the name of the cost or expense
 The second column should include the monetary figures related to the business’s
expenses
 The third column should include the monetary figures related to the business’s
revenue
 The third column should also include all the TOTALS , this includes the total gross
profit, the total expenses and the total net profit
An example of a REVENUE STATEMENT
Revenue statement for the year ending 30 June 2012
$
Revenue
Cash sales
Less Cost of Goods Sold
Gross Profit
Less Expenses
Wages
Rent
Electricity
Net Profit
$
215,000
90,000
125,000
38,000
20,000
5,500
63, 500
61,500
Further Examples – Complete the Revenue Statements for the following businesses.
Determine whether they have experienced a profit or loss for the year ending 30 th June.
Sam’s Sports







Cash Sales
Cost of Goods Sold
Wages
Lease Payments
Electricity
Promotions
Insurance
$230,000
$125,000
$40,000
$15,675
$5,500
$2, 760
$4,900
$
$
Gloria’s Coffee Corner







Cash Sales
Cost of Goods Sold
Lease Payments
Electricity
Free Samples
Advertising
Interest on Loan
$195,000
$46,700
$15,000
$9050
$1,550
$5,500
$4,565
$
$
Matt’s Mechanic







Cost of Goods Sold
Gross Profit
Wages
Lease Payments
Electricity
Advertising
Insurance
$280,000
$450,000
$150,000
$30,580
$12,000
$5,000
$5,500
$
$
Diana’s Home Depot









Cost of Goods Sold
Gross Profit
Wages
Lease Payments
Equipment
Electricity
Advertising
Insurance
Interest on Loan
$75,080
$128,000
$42,000
$17,000
$5,000
$7,000
$4,560
$3,750
$4,590
$
$
Jayden’s Juice Store







Cost of Goods Sold
Gross Profit
Wages
Lease Payments
Electricity
Advertising
Insurance
$380,000
$440,000
$160,000
$20,580
$16,000
$6,000
$7,500
$
$
1- What is the main use of revenue statement?
___________________________________________________________________________
___________________________________________________________________________
2- Construct a set of steps that somebody who doesn’t know much about revenue
statements can use to construct one.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Construct your very own Revenue Statement
Name of Business:
List of Revenue and Expenses
Revenue Statement:
$
$
Balance Sheet
The balance sheet shows the statement of financial position of a business at a particular
time. It can be thought of as a set of scales which weights what you own (assets) on one
side and what you owe (liabilities) on the other. Both sides must balance
The most important equation in a balance sheet is:
Owner’s Equity= Assets- Liabilities
OR
Assets= Owner’s Equity + Liabilities
Owner’s Equity: the value of the business to the owner
Assets: items of value owned by the business
Liabilities: debts owed by a business to others
Some things to remember when drawing up a Cash Flow Statement:

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

The left hand side of the balance sheet shows assets
The right hand side of the balance sheet shows liabilities and owners equity
Classify balance sheet items into one of the following categories
 Assets (Current or non-current)
 Liabilities (current or non-current)
 Owner’s Equity
All statistics for each sub-topic should be written in the left-hand column of the
appropriate section (assets, liabilities or owners’ equity)
All totals for each section should be written in the right hand column of the
appropriate section (assets, liabilities or owner’s equity).
When all balance sheet items are entered on the balance sheet, both sides should
have the same total.
When determining the value of the owner’s equity, add up all items in the assets
column, record the same total in the liabilities column, then subtract whatever
liabilities are listed from the “Total liabilities and owners equity” figure.
Important Terms Continued
Examples of Current Assets
Examples of Non-Current Assets
Examples of Current Liabilities
Examples of Non-Current Liabilities
Examples of Owner’s Equity
Example of a BALANCE SHEET
Assets
Current Assets
Cash at bank
Stock on hand
$
$
$
$
Current Liabilities
68,000
Accounts payable
35,000
Total
35,000
22,300
Total
90,300
Non-Current Assets
Equipment
Liabilities
Non-current
liabilities
58,00
Motor Vehicle
37,000
Glasses and Cutlery
12,500
Bank loan
55,000
Total
55,000
Owner’s Equity
Net Profit Retained
Capital
61,500
46,300
Total
107,500
Total
107,800
Total Assets
197,800
Total liabilities and
owners equity
197,800
Further Examples – Complete the Balance Sheets for the following businesses. Determine whether they have experienced a
profit or loss for the year ending 30th June.
Paul’s Pizza




Cash
Creditors
Mortgage
Pizza Ovens
Assets
Current Assets
Total
Non-Current Assets
 Loan
 Stock
 Delivery Vehicles
 Capital
$450
$2,400
$10,000
$1,500
$
$
Liabilities
Current Liabilities
Total
Non-current
liabilities
Total
Owner’s Equity
Total
Total Assets
Total
Total liabilities and
owners equity
$680
$550
$15,000
$4,420
$
$
Ben’s Bakery





Creditors
Cash at bank
Goodwill
Capital
Building
Assets
Current Assets
Total
Non-Current Assets
$23,000
$8,000
$2,000
$13,500
$4000
$




$
Ovens
Accounts receivable
Profit
Shares(in a company)
Liabilities
Current Liabilities
Total
Non-current
liabilities
Total
Owner’s Equity
Total
Total Assets
Total
Total liabilities and
owners equity
$3,500
$23,500
$9,500
$5000
$
$
Frank’s Pharmacy
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


Owner’s investment
Bank loan
Cash
Equipment
Assets
Current Assets
Total
Non-Current Assets




$10,000
$18,000
$15,000
$4,500
$
$
Stock
Accounts payable
Debtors
Premises
Liabilities
Current Liabilities
Total
Non-current
liabilities
Total
Owner’s Equity
Total
Total Assets
Total
Total liabilities and
owners equity
$5,500
$15,000
$8,000
$10,000
$
$
Sally’s Sports





Debtors
Owner’s Investment
Creditors
Cash at Bank
Building
Assets
Current Assets
Total
Non-Current Assets
$15,000
$3,500
$21,000
$8,000
$10,000
$




$
Bank Loan
Stock
Accounts payable
Goodwill
Liabilities
Current Liabilities
Total
Non-current
liabilities
Total
Owner’s Equity
Total
Total Assets
Total
Total liabilities and
owners equity
$4,500
$1,500
$9,000
$3,500
$
$
Danny’s Deli






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
Cash in store
Owner’s investment
Debtors
Building
Bank Loan
Creditors
Profit
Stock
Assets
Current Assets
Total
Non-Current Assets
$6000
$8,505
$5,100
$5,000
$15,000
$2,745
$3,500
$6,500
$
 Cash at Bank
$20,100






$26,000
$3,500
$7,300
$1250
$3000
$5000
Capital
Accounts payable
Accounts receivable
Goodwill
Shares
Equipment
$
Liabilities
Current Liabilities
Total
Non-current
liabilities
Total
Owner’s Equity
Total
Total Assets
Total
Total liabilities and
owners equity
$
$
Cash Flow Statements
A cash flow statement is used to keep track of the movement of cash within a business. By
regularly comparing cash inflows and cash outflows a business is able to calculate its
surplus or deficit cash. This is an important indicator of a business’s liquidity.
Some important equations to remember when drawing up a cash flow statement is:
Net Cash Flow= Total Cash Inflow – Total Cash Outflow
Closing Cash Balance= Opening Cash Balance + Net Cash Flow
Cash inflows: Money received by an organization as a result of its operating activities,
investment activities, and financing activities. Money coming in.
Cash outflows: Money paid out by an organization as a result of its operating activities,
investment activities, and financing activities. Money going out.
Net Cash flow: Total Cash inflow minus the Total Cash Outflow
Opening cash balance: The cash already existing within the business. The closing cash
balance from the previous cash flow statement.
Closing cash balance: This is the Opening Cash Balance plus the Net Cash Flow.
Steps to remember to when drawing up a Cash Flow Statement:
1.
2.
3.
4.
Calculate the total cash inflows by adding up all the cash coming IN to the business.
Calculate the total cash outflows by adding up all the expenses of the business.
Calculate the Net cash flow (Total Cash Inflow minus Total Cash Outflow)
Calculate the Closing Cash Balance (Net Cash Flow + Opening Cash Balance)
How to set out a Cash flow statement:




There should be 3 Columns
The first column contains all the headings/labels.
The second column contains all the monetary figures of things such as cash inflows
and cash outflows
The third column contains all the totals: total cash inflows, total cash outflows, net
cash flow, opening cash balance and closing cash balance.
Example of a Cash Flow Statement
Sam’s Soccer Boots
Cash flow statement for the year ending 30 June 2012
Net Operating Activities- 75,300
Wages – 38,000
Borrowed Funds- 55,000
Rent – 20,000
Opening Cash Balance – 11,000
Electricity- 5,500
$
$
Cash Inflows
Net Operating Activities
75,300
Borrowed Funds
55,000
Total cash inflows
130,300
Cash outflows
Wages
38,000
Rent
20,000
Electricity
5,500
Total cash outflows
63,500
Net cash flow (TCI-TCO)
66,500
Opening cash balance
11,000
Closing cash balance
77,500
Further Examples – Complete the Balance Sheets for the following businesses.
Determine whether they have experienced a profit or loss for the year ending 30 th June.
Peter’s Paint Store







Net Operating Activities
Borrowed Funds
Wages
Rent
Electricity
Maintenance
Opening Cash Balance
$85,000
$65,000
$20,000
$15,000
$6000
$4000
$10,000
$
$
Sam’s Skateboard Store








Net Operating Activities
Borrowed Funds
Wages
Paint Supplies
Rent
Electricity
Maintenance
Opening Cash Balance
$65,000
$75,000
$30,000
$6000
$12,000
$4000
$2000
$12,000
$
$
Tim’s tutoring





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

Net Operating Activities
Borrowed Funds
Wages
Stationary Supplies
Rent
Electricity
New Furniture
Opening Cash Balance
$85,000
$15,000
$35,000
$8000
$13,500
$4000
$7000
$21,000
$
$
Adam’s Aussie Restaurant






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
Net Operating Activities
Borrowed Funds
Wages
Ingredients
Rent
Electricity
New Tables and Chairs
Opening Cash Balance
$105,000
$11,000
$25,000
$18,000
$17,500
$7000
$7000
$52,000
$
$
Tanya’s Telecommunications
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


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Net Operating Activities
Borrowed Funds
Wages
New Display cabinets
Rent
Electricity
Glass Cleaner’s fee
Opening Cash Balance
$305,000
$17,000
$75,000
$11,000
$23,500
$12,000
$7000
$22,000
$
$